THE THREE BIGGEST RISKS TO ECONOMIC GROWTH
Barclays Wealth opines on the three biggest risks to the market (Via FT Alphaville):
“The first big issue facing the global economy is the reluctance of the US consumer to spend, with real household disposable income well below what it normally is at this stage of the economic cycle. The outlook here is worrying: the recovery could easily stall or peter out in 2011.
The second issue is whether or not the European Monetary Union (EMU) will survive. Fixed exchange rates make it difficult for countries to engineer gains in competitiveness, and dramatic fiscal tightening won’t necessarily help much if it leads to further declines in GDP. So, EMU could change form – and perhaps even break up entirely.
“Worse is to come…as German policymakers have chosen to now accelerate plans to rein in their own budget deficit. This decision has had the effect of ratcheting up how much other euro-area governments are expected to do. For this reason Barclays Wealth has lowered our euro-area growth forecast for 2011 to just 1%.
The final issue…is Asian inflation. The region’s ability to grow at an above-potential pace will be constrained by inflation fears. Worse still, Barclays Wealth Research suggests that Chinese inflation may be quite sensitive to shifts in the output gap. When it is positive, as it currently is, inflation normally rises several percentage points. A substantive tightening is likely to be warranted, but China and the other major regional economies still look unlikely to slam on the brakes. If so, then markets may continue to worry about growth being unsustainably fast.”
Reluctance to spend? While they admit in the same sentence that it’s hardly the US consumer’s fault, as these ‘consumers’ are out of money?
How hard is it to write ‘the US consumer has been bled dry and is out of a job, so there is little to expect there. We’re waiting on China to start producing consumer demand, rather than forcing its citizens to only invest in the Chinese real estate bubble (thus keeping down inflation)?
Maybe once they start buying stuff, the US will have somewhere to export to, so that they can start hiring “american consumers” (citizens?) once more.
>Reluctance to spend? While they admit in the same sentence that it’s hardly the US consumer’s fault, as these ‘consumers’ are out of money?
Right, the problem is not US consumer’s reluctance to spend but the need for everyone to recognize the US households need to save more and the global economy needs to rebalanced at a lower, less leveraged, demand level.
>We’re waiting on China to start producing consumer demand, rather than forcing its citizens to only invest in the Chinese real estate bubble (thus keeping down inflation)?
Right again but I’d phase it as: waiting on China to become free market capitalists. I’ll start holding my breath now.